“Should I set up an LLC or an S Corp?”
I hear this question almost every week.
Unfortunately, most of the advice online is written for generic small business owners—not physicians and dentists.
The biggest misconception?
An LLC and an S Corporation are not competitors.
An LLC is a legal entity.
An S Corporation is a tax election.
They’re solving different problems.
The Legal Side
For many physicians and dentists, state law dictates what legal structure you can use.
For example, in California, physicians generally practice through a Professional Medical Corporation and dentists through a Professional Dental Corporation.
And here’s another common misunderstanding:
An LLC won’t protect you from your own malpractice.
That’s what malpractice insurance is for.
The Tax Side
The real attraction of an S Corporation is potential payroll tax savings.
The concept is straightforward:
Pay yourself a reasonable salary.
Take remaining profits as distributions.
The tax savings exist only if there's a meaningful spread between the practice's net profits and your reasonable compensation. If that spread is small, the costs of establishing and maintaining an S Corporation may outweigh the benefits.
And that’s where many physicians and dentists get bad advice.
Why Many Solo Doctors Don’t Save Much
If your practice income comes almost entirely from your own clinical work, reasonable compensation may be very close to total profits.
Little gap.
Little tax savings.
But plenty of additional compliance.
Payroll
Corporate tax returns
Bookkeeping
State filings
An S Corp isn’t automatically a bad idea.
It just isn’t automatically a good one.
When S Corps Shine
S Corps become much more attractive when a practice develops leverage.
Associate physicians
Nurse practitioners
Support staff
As profits grow beyond what you’d reasonably pay yourself as compensation, the tax benefits can become much more meaningful.
What About Group Practices?
Ironically, many group practices may benefit more from partnership structures than S Corporations.
Partnerships offer flexibility that S Corps simply don’t.
Different productivity
Different compensation arrangements
One-size-fits-all rarely works in medicine.
The Bottom Line
For physicians and dentists, the question isn’t:
“Should I form an LLC or an S Corp?”
The better questions are:
What legal structure does my state require?
What are my actual practice economics?
Is there enough profit above reasonable compensation to justify an S Corp?
Would another structure work better for my practice?
The right answer depends on your specialty, your state, and your business model.
Unfortunately, there isn’t a generic internet answer for that.
📅 Are you a physician or dentist looking for legitimate ways to reduce taxes and structure your practice more efficiently?
Book a free consult:
https://linktr.ee/drtaxtor
Disclaimer: This article is for educational purposes only and should not be construed as legal or tax advice. Individual circumstances vary.
